Victory Capital's Strategic ETF Push and Global Ambitions Fuel Resilient Growth Amid Headwinds

Victory Capital (NASDAQ: VCTR) has emerged as a paradox of resilience in the second quarter of 2025, with Total Client Assets rebounding to $301.6 billion despite recording $660 million in net outflows. While short-term metrics present challenges, the firm's aggressive pivot toward ETFs and global expansion underscores a compelling long-term narrative. Investors should take note: Victory Capital is positioning itself to capitalize on structural trends in passive investing and non-U.S. market growth, making it a compelling play for those with a strategic, patient outlook.

The ETF Growth Engine: A 67% Surge and the UCITS Play
At the heart of Victory Capital's story is its ETF segment, which grew an eye-catching 67% year-over-year to $13 billion in Q2. This expansion isn't just a numbers game—it's a deliberate strategy. The firm is leveraging its U.S. equity and fixed-income expertise to build out a global ETF platform, with plans to launch UCITS-compliant ETFs in late 2025, targeting European and Asian investors. These funds will allow Victory to tap into regions hungry for low-cost, rules-based strategies, a market dominated by giants like BlackRock and Vanguard.

The UCITS push is critical. Europe's regulatory framework requires non-EU firms to offer UCITS-compliant products for broad distribution, and Victory's move aligns with its ambition to claim 15% of total AUM from non-U.S. markets. This goal is achievable through its partnership with Amundi, Europe's largest asset manager, which provides a distribution network spanning 40+ countries. With Amundi's reach, Victory's ETFs could gain instant scale in high-growth regions like Asia, where passive investing is still underpenetrated.

Fixed Income: The Bedrock of AUM Stability
While ETFs steal headlines, Victory's fixed-income assets remain the backbone of its AUM. Fixed income now accounts for 28% of total AUM, reaching $79.75 billion as of June—a $800 million jump from May. This growth reflects investor demand for income-generating assets amid rising interest rate uncertainty. Victory's focus on diversifying its fixed-income offerings, including credit strategies and short-duration bonds, has positioned it to weather volatility better than peers reliant on equities.

Integration Gains and Margin Resilience
The merger with Pioneer Investment Management continues to deliver synergies. $50 million in savings have already been realized through operational efficiencies, with $110 million expected by 2026. Despite these gains, EBITDA margins remain flat due to accounting changes—specifically, the adoption of net reporting for Pioneer's expenses. However, this is a temporary hurdle. As higher-margin ETFs scale and integration costs subside, Victory's long-term 49% EBITDA target becomes increasingly attainable.

The Case for Global Diversification: Why Amundi Matters
Victory's partnership with Amundi isn't just about distribution—it's a catalyst for global diversification. Amundi's $2.3 trillion in AUM provides access to institutional and retail clients across Europe, while Victory's active-passive hybrid strategies (think ETFs paired with alternative investments) offer a unique value proposition. The firm's Alternative Investments segment, though small at $2.986 billion, is growing steadily, suggesting potential for cross-selling opportunities with Amundi's broader client base.

Risks and Near-Term Challenges
No story is without risks. Victory's consolidated fee rate dipped to 46–47 basis points in Q2, pressured by the shift to net accounting and a larger fixed-income portfolio (which typically commands lower fees). While this trend could persist, the strategic emphasis on ETFs—which command higher margins—should eventually stabilize the metric. Additionally, flow volatility remains a concern; while Q1's $9.3 billion in gross sales (a three-year high) is promising, outflows in Q2 highlight market sensitivity.

Investment Thesis: Hold for the Long Game
Victory Capital is a stock for investors who can look past short-term noise. The firm's ETF-led growth, fixed-income stability, and global expansion form a trifecta of advantages in a market increasingly favoring low-cost, scalable solutions. With $176 million in cash and a 1.7x net leverage ratio, its balance sheet supports buybacks and dividend growth ($0.49 quarterly yield at current prices).

Actionable Insight: Position Ahead of the Q2 Earnings Call
The upcoming August 8 earnings call will be pivotal. Investors should monitor:
1. ETF inflows: Confirm the sustainability of the 67% YoY growth.
2. Synergy progress: Any acceleration beyond the $50 million savings already achieved.
3. Amundi integration updates: Details on UCITS launches and non-U.S. AUM traction.

Final Take
Victory Capital is at an inflection point. Its ETF strategy and global ambitions are not just defensive moves—they're bets on the future of asset management. For investors willing to overlook near-term volatility, VCTR offers a rare combination of growth and stability. Consider accumulating shares ahead of the Q2 call, particularly if the stock remains range-bound around its 52-week low. This is a hold-to-buy story, with upside potential as ETFs and international expansion deliver on their promise.

The clock is ticking. The August earnings call could be the catalyst to propel Victory Capital's valuation higher—provided execution stays on track.